I recently read an article from The Financial Brand outlining the problems financial institutions have in cross-selling services with associated fees. The article compares data from Amazon Prime sales to the lack of success FIs have had in selling fee-based services. They found, even when Amazon raised the price for the Prime service, subscribership increased. The point of the article was Amazon had successfully created a package of services that customers believed offered great value in comparison to the monthly fee, and the implication was if banks did the same, they would see similar results.
I disagree. Banks have offered packaged services for decades. Often tied to a specific account, bundles of insurance, account verification, or travelers checks (if you are a Millennial, you can Google that to learn of their value and efficacy in years past) were a mainstay for how banks tried to attract account holders. The issue is not how things are bundled or even how to calculate the “value” of a bundle, but banks’ long-standing ritual of offering their valuable services for free. Unlike most banks, Amazon has always charged fair fees for the services it provides. I would also throw Netflix in that category. It’s easy for people to articulate the value they receive from their membership with Amazon Prime or Netflix, but try to get someone to articulate what his or her bank fees represent in terms of value. It’s painful to hear, trust me.
As I have written numerous times before, financial institutions are addicted to free offerings like an addict is to cocaine, and they have hooked their customers on it as well. We have literally trained customers over the decades that there is no value in basic transactional services, and how could there be if you plaster free things everywhere, even in a big banner outside of the bank? Would you rush over to a burger joint or marine supply store if they were saying the product was free? Wouldn’t you be suspicious of the product’s quality? How would you feel if your insurance or mortgage broker hung a big sign outside advertising free accounts? Would you drop your current mortgage insurance to get a “free” policy? It sounds too good to be true, right?
What financial institutions do is valuable, and yet they spend virtually no time or money in getting their “value” story into the minds of current and future customers. Bankers don’t appear to think our world’s economic changes apply to them. Hey, they seem to think, let’s bank like it’s 1975! Banks who operate like that will soon find a rapidly depleting customer base as older customers pass on, and newer prospects consider them irrelevant.
This is not only applicable to financial institutions—what are you doing in your business to ensure you have products and services that are appropriately priced for the value they provide? Are you telling your story to educate future customers? If you haven’t been including topics such as this in your annual strategic planning sessions, then it’s high time you started. If you need assistance on how to get started, or just want to share your story of how you strategically planned for tomorrow’s customers, contact me at david@i7strategies.com. Either way, I look forward to hearing from you.